ECON 205 Lecture (4.21.2008) - Surplus budget Expansionary...

ECON-205 Lecture  4-21-2008 Fiscal policy: changing government spending and taxation to achieve full employment with price stability-Discretionary fiscal policy: act by the Congress to change taxes and government spending/expenditures to achieve full employment with price stability-Automatic (built-in) stabilization: built in the fiscal system… built in the tax system… mostly for Social Security and unemployment insurance Balanced budget (Expenditures = Revenues) Deficit budget

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Unformatted text preview: Surplus budget Expansionary: increase C (lower taxes income/corporate two most famous taxes) + G, increase I (lowering rate of interest) Contractionary: lower C + G John Keynes put emphasis on “C” and “G.” “C” is #1, “G” is #2, and “I” is #3. The classicals said leave the economy to the investors “I.” Keynes said that this was not enough. 1984-1988 C Tax cut G Deficit What kind of fiscal policy “he” used? Expansionary fiscal policy....
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